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Title: A Plague of Locusts Author: Solidarity Federation Date: Spring 1999 Language: en Topics: globalization, Direct Action Magazine Source: Retrieved on January 19, 2005 from https://web.archive.org/web/20050119185254/http://www.directa.force9.co.uk/archive/da10-features.htm Notes: Published in Direct Action #10 — Spring 1999.
A plague of locusts has swept across SE Asia, Russia and now Brazil —
unlike other locusts, these act not out of hunger, but sheer greed.
Super-rich investors and bankers are driving the Third World further
into poverty. Judging by some media coverage, you might think these
people have lost vast fortunes as currencies fall and economies are
tipped into recession. But the only losers are ordinary people condemned
to poverty — while western speculators laugh all the way to the next
crisis.
The Brazilian working class are the latest victims in this series of
crises that goes back to the 1997 devaluation of the Thai bhat. Back
then, currency collapses quickly followed in Malaysia, South Korea, Hong
Kong and Indonesia, all caused by western speculators. In 1996, $100
billion flowed into Asia, most destined for short-term investments in
shares, bonds, and land speculation, rather than direct investments like
plant, machinery or infrastructure. However, these short-term, fast-buck
merchants panicked and, by the following summer, the money was flowing
out as fast as it had flowed in.
United Nations Children’s Fund (UNICEF) statistics for south east Asia
now show a 30% malnutrition rate among under 5’s — comparable with
Africa. Meanwhile, 80 million Indonesians have sunk below the poverty
line as food prices have doubled following devaluation of the rupiah.
Wages and welfare benefits have been slashed across the whole region.
The culprits for this poverty are the big investment banks and
brokerages like Merril Lynch, Goldman Sachs and Morgan Stanley. Of just
over 110,000 Americans who earned over $1 million in 1996, a
disproportionate number of them worked on Wall Street. Such undeserved
prosperity is reflected in an orgy of mindless consumerism — sports car
sales up, yacht sales more than doubled, and a rash of 8 and 9,000
square foot “trophy homes”.
Investing in south east Asia promised massive profits from the
exploitation of low waged workers. Stockmarkets took off as foreign
money poured in and the speculative frenzy took hold. To build factories
and hire labour, local capitalists borrowed vast quantities of US
dollars, converting them into local currencies, thus maintaining their
value against the dollar. What happened in 1997 was that the speculators
realised that no amount of super-exploitation of Asian workers could
generate profits high enough to justify the huge investment. That’s when
the tide turned.
And now a practically identical situation has occurred in Brazil, the
largest country in South America and, as such, crucial to the economic
future of the whole continent. With 50% of Latin America’s total GDP,
Brazil is vital to both American continents, including the US. Hence,
western institutions attempted to prop up the Brazilian economy leading
to heavy falls in equity markets due to the collapse in the currency,
the real. At one point, 3% was wiped off the UK stock market. In
January, despite 50% interest rates, massive lay-offs, and vicious pay
and welfare cuts, speculation finally forced the devaluation of the
real, leading to immediate price rises in food imports. This failure to
convince foreign investors of Brazil’s financial and political
credibility will inevitability lead to yet more deaths from hunger.
So, do investors get their fingers burnt through stupidity and greed?
No, they actually lose very little, if at all. They lobby the IMF as
soon as currency collapses begin. Since the IMF only lends to countries
on condition that they adopt IMF policies, those with currencies under
attack are forced to raise interest rates to insane levels. This is to
give investors a higher return, and therefore stem the outflow of
capital. But whatever the currency, experience shows that collapse
cannot be delayed once investors have lost confidence. For instance, the
sterling devaluation of 1992 occurred amid desperate interest rate
hikes. However, what such responses do achieve is to give investors just
enough time to get their money out without sustaining heavy losses. So,
high interest rates are good for the short-term investor but disastrous
for the working class who, as usual, end up paying, as the economy nose
dives.
In Brazil’s case, the IMF arranged $41 million of assistance, designed
to relieve not only the pressure on Brazil, but on the whole of Latin
America, hoping to prevent the contagion spreading northwards into the
US. However, all it achieves is a safety net for investors rushing to
get their interests out of the Brazilian real, which continues its
downward spiral.
Capitalism survives by lending money and raking in the interest. But it
has now over-stretched itself by lending vast amounts to countries with
no hope of repaying the interest without driving their people to poverty
and beyond. Capitalist institutions regularly devise ‘rescue packages’,
which mean lending even more money. And Brazil, despite being very rich
in resources, is being sucked dry by debt repayments.
It is becoming increasingly impossible for developing countries to keep
up. The crisis resembles the Hydra of Greek mythology which, having had
one head chopped off, immediately sprouted two more. No sooner is one
emergency sorted out, than stock markets start crashing elsewhere.
Global capitalism is haemorrhaging.
Campaigners call for debt cancellation and, following horrific hurricane
damage in central America and the Caribbean, tentative progress has been
made in this direction. But debt repayments are capitalism’s life blood
and cannot simply be wiped away, if it is to survive. However, the
situation is becoming one of “can’t pay” rather than “won’t pay”. It is
inevitable that the rot will spread sooner or later to the US and on to
the rest of the developed world. And when it does, capitalism will
squeeze us all more than ever before to keep its profits up. Meanwhile,
the locust speculators go on, descending on nation after nation,
stripping whole economies bare to satisfy their never-ending greed. They
leave behind countries bereft of work and affordable food, their health
and education systems in tatters.